A Note on the Estimation of Intergenerational Income Correlations by the Method of Averaging

Ramses H. Abul Naga

Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) from Université de Lausanne, Faculté des HEC, DEEP

Abstract: Averaging methods are routinely used in order to limit biases resulting from the mismeasurement of permanent incomes. The Solon/Zimmerman estimator regresses a single-year measurement of the child's resources on a T-period average of the parents' income while the Behrman/Taubman estimator regresses an S-period average of the child's resources on a T-period average of the parents' income. The latter estimator is shown to be the arithmetic mean of the S slope estimates arising from the Solon/Zimmerman methodology. However, because sampling variation produces yearly changes in the variance of children's incomes, it is shown that the Behrman/Taubman estimator is not efficient in the class of estimators which can be expressed as a weighted sum of the S distinct Solon/Zimmerman estimates. The minimum variance estimator in the above class is thus derived and applied to a US sample.

Keywords: intergenerational mobility; measurement error; averaging methods; minimum variance estimation. (search for similar items in EconPapers)
JEL-codes: I3 J62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2000-07
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Working Paper: A Note on the Estimation of Intergenerational Income Correlations by the Method of Averaging (2001)
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Persistent link: http://EconPapers.repec.org/RePEc:lau:crdeep:00.14

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